For-Profit/Non-Profit Housing Partnerships: How Do They Work?

Watt/Parker Describes the for-Profit Perspective in Housing Partnership

by Mick Parker 

In 1988, WLCAC and Watt/ Parker successfully completed 70 units under the Century Freeway Housing Replacement Program through a relationship that satisfied the purposes and objectives of both companies. 

Watt/Parker, Inc. is a 13-year-old for-profit real estate development and construction company that special­izes in government sponsored hous­ing, providing affordable housing for low income residents. Watt/Parker has, since its inception, been involved with non-profit housing sponsors acting as “venture partners” in one form or another, whether serving as an involved general contractor or acting as the development manager. 

As a subsidiary company of Watt Enterprises, we have at our disposal all of the resources of the parent company. We have completed over 50 projects to date, many with about a dozen non-profit organizations, such as WLCAC.

For-Profit/Non-Profit Comparison 

The objective of non-profit hous­ing sponsors and for-profit housing development companies is the same — namely to create affordable hous­ing. Both types of entities are essen­tial to create the product effectively and to ensure that it continues to serve its social purposes.

For-profit developers produce housing efficiently in order to create a gross income. From this income, the developer pays for its operation and overhead and, hopefully, has a net profit. These profits are then used to pay taxes for general social benefits and to create equity capital for the next project. 

Usually, non-profits have sources of income, such as government or private grants, that are independent of the housing product. These enable the organization to pay its overhead and provide the services for which it is chartered.

For-profit developers’ sole mis­sion is to produce housing. They have the network and the resources built over years of working exclusively in the competitive housing marketplace. They are experienced in working with architects, engineers, subcontractors, and other development consultants in directing the preparation of the re­quired documents to be most cost effective. 

For-profits have an established “track-record” of delivering housing on time and within budget; this gives public agencies or private lenders the needed security and guarantees they require. Most developers have established relationships with financial in­stitutions, know how to obtain finan­cial commitments for projects, and should have the financial strength that will provide the required security for financing. For-profits also have trained staff that are knowledgeable in the legal, economic and construction aspects of projects and have es­tablished systems of purchasing, bid­ding and subcontracting. 

What Nonprofits Contribute 

Through Watt/Parker’s experi­ence with WLCAC, we have learned that nonprofits bring many benefits to a housing venture. They know the specific needs of their community, can target their resources to meet those needs, and ensure that they serve the social uses intended over the life of a project. Also, they have a grass-roots base and appeal to the community they serve, thereby bringing a politi­cal constituency for overcoming obstacles to development. Most im­portantly in today’s financial envi­ronment, they can bring government financial assistance to projects, as well as preferential tax and other exemptions that translate into reduced in­come requirements. Finally, non­profits may assist in the management or manage the project themselves. 

Because of our positive experi­ence with such effective non-profits as WLCAC, we continue to feel that the partnership model between the non-profit organization, the for-profit developer and local government is most effective in the production of low income housing for many communities. We welcome the opportunity to serve in this capacity.

Mick Parker is President of Watt/Parker, Inc.

WLCAC Describes Perspective of Non-Profit Housing Partner

By Ted Watkins and Louise Manuel

The Watts Labor Community Action Committee (WLCAC) has been forming public-private partnerships since it was organized as a non-profit community development corporation in 1965. The United Auto Workers financed WLCAC’s first land purchase in 1968. Security Pacific National Bank became a long-term financial partner with WLCAC in 1971 — facilitating the development of several hundred houses and apart­ments in the Watts/Willowbrook area. Local labor unions formed an em­ployment training partnership with WLCAC during the late 1970’s to teach youth construction trades on WLCAC development projects. 

Once our own track record was established, we began in the 1980’s to seek out larger projects involving “partnerships” with well-established commercial and residential developers. A Limited Partnership between WLCAC and shopping center devel­oper Alexander Haagen constructed 14.5-acre community shopping cen­ter in Willowbrook which opened in 1987, which this partnership contin­ues to own and manage. WLCAC holds a 25% ownership share in the shopping center and uses income from this project to rehabilitate and develop new residential units benefitting lower-income residents of South Central Los Angeles.

The Watt/Parker Partnership

Most recently, WLCAC has worked with Watt/Parker, Inc. on two major projects: 1) a 70 unit multi­family development in Willowbrook; and, 2) the newly opened 13,844 sq. ft. Theresa Lindsay Senior Citizens Multi-Purpose Center on City-owned parkland located at 429 E. 42nd Place. 

The Willowbrook residential project was built in 1988 on land which WLCAC had owned since the early 1970’s, but had been unable to develop due to a lack of construction funds. WLCAC and Watt/Parker, Inc. formed a Limited Partnership which negotiated a “turn-key” construction contract with the Century Freeway Housing Replenishment Program. WLCAC received a fair market price for its land, and a 50% share of the developer’s fee. Watt/Parker acted as the Managing Partner and construc­tion contractor. 

WLCAC helped Watt/Parker obtain friendly access to neighboring properties for survey and fence build­ing purposes, and attended meetings with the Century Freeway Housing Program’s staff and attorneys. For the most part, however, Watt/Parker handled all project logistics and pa­perwork, a major plus (and change of pace) forWLCAC. Most importantly, the project is a beautiful addition to the community, maintaining the quality standard WLCAC has sought to achieve in all its projects.

Building a Senior Center 

The second partnership with Watt/Parker built on the mutual trust developed on the Willowbrook resi­dential project. This time, WLCAC secured $2,366,353 for construction of a new Theresa Lincbay Multi-Pur­pose Senior Center — sorely needed to replace a small rented storefront which housed a rapidly expanding portion of WLCAC’s senior citizen nutrition and social service programs. 

These funds came in the form of grants to WLCAC from the State of California Department of Aging ($1,434,320) and from the City of Los Angeles ($962,033). The City’s De­partment of Parks and Recreation also provided a cost-free, 20-year lease on the City park project site. WLCAC hired the architect, and helped guide the project through to the point where a building permit was in hand. Then we looked for a general contractor. 

Having originally intended to build the project with our own Greater Watts Development Corporation (but later deciding that we needed a “part­ner” for this specialty building), we sought bids from contractors willing to work closely with our planning and program staff.

We negotiated with several be­fore settling again on Watt/Parker, Inc. The “clinching deal points”: Watt/Parker helped us lower project costs in several critical areas, and R.A. Watt, CEO of parent company Watt Industries, pledged a $175, 000 contribution to make the project “work.” The final project exceeded the $2,571,353 total budget by only about $7,000, or 0.27%. WLCAC took no developer’s fee for the project, and Watt/Parker absorbed a few “extras.”

The Results 

We like to remind Watt/Parker’s President, “Mick” Parker, that the best part of this project was that he didn’t have to go to any banks or government agencies for money to build the project. This means, however, that since WLCAC’s staff applied for and managed the public grants, we had much more involvement (and head­aches) on this project than the first. The tough parts were keeping change orders to a bare bones minimum (less than 3% of the construction contract), and meeting the paperwork requirements of two government agencies. 

WLCAC is very satisfied with the results: we have again experi­enced the benefits of working with a reliable, trustworthy and likable business partner, and together we have produced another beautiful commu­nity facility. We’re eager to do an­other one soon. Okay, Mick?  

Ted Watkins is President and Louise Manuel is Senior Planning of the Watts Labor Community Action Committee.